Koreans have a proverb that says, "when whales fight the shrimp's back gets broken." Of course, it refers to the location of the Korean peninsula, sandwiched between two larger countries and economies.
At least in the ICT sector, the Japanese "whale" has become much less of a threat to Korea, as pointed out in a post on the Barron's Asia blog entitled "In technology, China is a bigger threat to Korea than Japan is." The post draws heavily on the analysis of Nomura Securities strategist Michael Na, who notes "We think the level of Korean tech players’ direct competition vs Japanese players has declined significantly, as opposed to in the past. This is mainly because many Japanese tech companies have exited from those IT products (ie, TV/display, smartphones, DRAM) in which Korean players have a competitive edge, or have seen their market positions deteriorate substantially. The market circumstances have changed such that Japanese players now primarily supply IT components, materials, and equipment to Korean tech players." Furthermore, Na observes that "We see a much higher degree of direct competition between Korean and Chinese companies. Chinese tech firms have already experienced significant growth, especially in set products (ie, TV, smartphones), by taking advantage of: 1) large-scale domestic demand in China; and 2) the fact that Chinese players are not regulated for IP (intellectual patent) issues."
In this situation, Korea finds itself struggling to "inch up the value chain," as the Barron's post puts it. Put otherwise, the big hurdle or challenge facing Korea is to shift its emphasis away from hardware manufacturing and exports and toward software, content and services. This challenge is also at the heart of the creative economy initiative in Korea and involves the shift from a domestic to a global mindset. I'm thinking that we'll see interesting progress toward meeting this challenge in 2015!